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How to Secure a Student Loan with Bad Credit

Eager to pursue higher education but worried your bad credit will stand in the way? Fear not. Bad credit—typically a FICO® Score of 579 or less—doesn’t automatically disqualify you from getting a student loan. In fact, federal student loans can be an excellent choice for college students with low credit scores. Here’s what you need to know.

How to Get a Student Loan With Bad Credit

Federal student loans should be your first consideration when borrowing money for college, especially if your credit score needs some work. However, if you’re ineligible for federal loans or you’ve reached your federal loan limit, private student loans can be a decent option.

Apply for Federal Student Loans for Bad Credit

Federal student loans are often the best option for college students because most loan programs don’t require a credit check or a cosigner. If you’re a graduate student or a parent, the direct PLUS loan program does require a credit check but only to rule out borrowers with major negative items on their credit reports, such as bankruptcy, foreclosure, and loan default.

Additionally, federal loans offer standardized interest rates, which means that all borrowers get the same rate regardless of their creditworthiness. You can apply for federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). Depending on your situation, you may be eligible for subsidized or unsubsidized loans.

Pros and Cons of Federal Student Loans

• Pros: No minimum credit score and, in most cases, no credit check; standardized interest rates; several relief options in repayment.
• Cons: Low annual loan limits for undergraduate students; no choice of loan servicer; come with upfront loan fees.

Apply for Private Student Loans for Bad Credit

Private student loans typically require a credit check to get approved, so if you’re considering one, it’s a good idea to get a cosigner, such as a parent, to apply with you. Some private loans require cosigners, but even if they don’t, you may have a hard time getting approved on your own. Because a cosigner agrees to repay the loan if you can’t, their creditworthiness can not only help you get approved but also secure more favorable loan terms.

There are some lenders that may be willing to work with you without a cosigner—instead using your degree program and prospective career to define your creditworthiness. However, these options tend to be very costly ways to borrow. Take your time to shop around and compare several lenders to determine the right one for you based on your needs.

Pros and Cons of Private Student Loans

• Pros: No upfront loan fees; larger annual loan limits; choice of lender.
• Cons: Strict eligibility requirements; higher rates compared to federal loans; minimal relief options in repayment.

How to Improve Your Credit Before Applying for Student Loans

If you ultimately decide to take out a private student loan, improving your credit scores can help you qualify for lower interest rates and save you a lot of money in the long run. Here are some strategies for improving bad credit or building credit from the ground up:

• Pay on time: Make it a priority to always pay your bills on time. If you’re behind on any payments, get caught up quickly to minimize further damage to your credit score.
• Lower your balances: If you already have credit card debt, pay off as much as possible before applying for a private student loan. Reducing your credit utilization rate can increase your credit score in short order.
• Open a credit card: Responsible use of a credit card can show lenders you’re able to effectively manage other forms of debt. With bad credit, a secured credit card can be a good fit to help you get back on track. Just make sure to pay off your balance every month to keep your balance low relative to your credit limit.
• Become an authorized user: Whether you’re building or rebuilding credit, asking a loved one to add you as an authorized user on a credit card that they manage responsibly—meaning they pay on time every month and maintain a low utilization rate—could help raise your credit score.
• Get credit for alternative payments: Experian Boost® is a free feature that allows you to build credit by adding on-time payments of eligible rent, utility, internet, phone, and streaming bills to your Experian credit file.

How to Get Financial Aid for College

Federal student loans are a form of financial aid, but there are several other options available that don’t require repayment, including scholarships, grants, and work-study programs. Here are some ways to evaluate your options and test your eligibility:

• Fill out the FAFSA: The FAFSA is the federal financial aid application offered by the Department of Education.
• Fill out the College Scholarship Service (CSS) Profile: The CSS Profile is an online application offered by College Board and can give you access to non-federal institutional aid.
• Search for other opportunities: You can use scholarship search engines like Scholarships.com, Fastweb, and Scholly to find scholarships and grants offered by private organizations.

Alternatives to Student Loans for Bad Credit

Beyond student loans, consider these options for paying for college:

• Research nonprofit or private scholarships you might qualify for.
• Look into grants, which don’t need to be repaid. When you fill out your FAFSA, you’ll automatically be considered for some grants.
• Consider work-study, a federal aid option that allows you to earn funds by working on campus.
• Consider getting a part-time job or searching for paid internships in your field to earn an income while you’re in school.

Frequently Asked Questions

What Credit Score Do You Need for a Student Loan?

Federal student loans typically do not require a credit check, so your credit score is not a factor. However, private student loans usually require a credit check, and a higher credit score can help you secure better terms.

What to Do if You’re Denied a Student Loan

If you’re denied a student loan, consider improving your credit score, finding a cosigner, or exploring alternative funding options like scholarships, grants, and work-study programs.

Focus on the Long Game With Your Credit

While your credit score may limit your options for obtaining a loan or credit card right now, developing good credit habits and rebuilding your credit score can put you in a better position to get approved for inexpensive financing options when you need them in the future. With Experian’s free credit monitoring service, you’ll get access to your FICO® Score and Experian credit report, making it possible for you to pinpoint areas that need to be addressed and also track your progress.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate the complexities of securing a loan, even with bad credit. Don’t let your credit score hold you back from achieving your educational and financial goals. Call us today!

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